United States

BEPS Impact on Trade and Customs

Jul 28, 2016
From the KPMG TaxWatch

Todd Smith, principal in KPMG LLP’s Trade & Customs practice discusses the potential impact of the OECD’s Base Erosion and Profit Shifting (BEPS) action items on global customs valuation, compliance, and potential red flags that may lead to customs valuation audits.


Todd Smith: We had over 350 people attend the webinar on BEPS from a Customs Perspective. I think the reason is because there hasn't been a lot of discussion on how BEPS will impact customs. 

I read all of the action items that the OECD published in October to identify where there would be crossover or an overlap on customs as it relates to BEPS. There clearly is going to be quite an impact.

For one thing, there is a lot of transparency that is being created overall by the BEPS initiatives, and customs auditors around the world are increasingly cooperating with the tax administrations around the world, so there will be a treasure trove of information for the customs auditors found within the Master File, the Local File and the CbC report, and just as tax administrators will use that information because of the information sharing, customs auditors will also use that information to identify targets for audits.

It will tell them, for example, where there is a related party transaction where they may not have had that information previously. 

One of the big areas that we feel the customs function will be impacted by BEPS is where you have a situation where a company may need to convert a commissionaire to a buy-sell.  When this happens, the importer of record could change, and more importantly the value that's declared to customs under a commissionaire structure oftentimes is the third-party customer price. And when that entity converts to a buy-sell entity, the new buy-sell entity becomes the importer of record.  It needs to achieve a margin, and the only way really to do that is to import that same product at a lower price. 

And so the challenge is to convince the customs administration that the new price with the limited-risk distributor, for example, which is lower in its related party price, is still considered arm's length, even though it's less than the previous import value at the 3rd party customer price. And this is something that we're able to help our clients with.

For more information on Trade & Customs services, contact Todd Smith at trsmith@kpmg.com

Suggested article: BEPS from a Customs Perspective - Journal of International Taxation



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